With the hype around Amazon Prime Day at a frenzy, many retailers were rushing to put out combative offers and purchase incentives that would drive users to them, rather than allow the eCommerce giant to supposedly gobble up every single person shopping on the internet yesterday. With news of Amazon owning 55% of all retail search on the internet and cries of a 13% conversion rate. The fear amongst every other retailer was palpable.
But how can Amazon offer these deals? How can other retailers compete?
At www.lovethesales.com we have an interesting view of the situation, due to the fact that we work with hundreds of retailers to sell their sale items. This widespread view of consumer behaviour across brands and retailers paints an interesting picture.
On Prime Day 2017, we reviewed many of the offers available to Prime members and found that, true to their word, the majority of Amazon’s offers were excellent. However, we felt there was a chance people may flock to the offers, but some may come away without finding the exact thing they were after. Clicking through on some of the early offers showed that only five great camera deals were advertised, or a limited selection of 12 Clarks shoes, for example. That said, whilst a number of products were available in other places for the same price, or slightly less, many were unbeatable on the day. With this in mind, it’s not surprising many retailers were worried!
Amazon clearly had a great day...
When looking at the success of Prime Day and how you can compete as a retailer, the first thing to consider is why Amazon do it in the first place. They do it because they want people to sign up to Prime, and stay signed up. Amazon know that a customer signing up to Prime is worth a lot to them. They understand the lifetime value – beautifully illustrated by the fact that Prime members have a conversion rate of a whopping 74%.
Having worked with hundreds of retailers, I still see many focus their efforts solely on making a specific profit margin on every sale, rather than considering a more intelligent lifetime value model that considers cohorts, profit margin per product, investment principles and more.
When you stop and think about how Amazon are able to offer these to-good-to-be-true deals, it becomes clear. Having a true understanding of the value driven by a sale in regard to the overall lifetime value allows retailers to become far more competitive.
If I know the average user will spend £2,000 with me over the course of their lifetime, why wouldn’t I spend £100 to acquire them, rather than the £10 that my usual margin focussed method would normally allow for from the first purchase?
So, whilst worrying about competitive offers and great incentives seems relevant, what does it add to the bottom line and the lifetime spend of a user? And if you fear Amazon, what can you do to replicate their success, rather than frantically parrying every blow coming in your direction.
It is apparent that if more retailers and marketers adopted a far clearer view of revenue over a customer lifetime, they’d be better placed overall for success, not just to combat Amazon on the day. The eCommerce giant has amazing insight into its customer and knows that somebody that buys into the idea of Prime will become profitable in time. This frees them up from the stress of having to make profit instantly and so allows them to understand how much they are willing to ‘pay’ to acquire customers.
In the instance of Prime Day they pay for that customer by making less profit. On other days it may be the acquisition cost of paid search, or another channel. Regardless of the medium though, the knowledge allows them to be far more competitive. They can cut margins on prices at certain points. They can bid more for keywords. They can invest more in paid social.
Whilst the idea of adopting a sound lifetime value strategy will seem obvious to some, it’s surprising how many haven’t even started.